18 lessons to learn from crowdfunded start-ups
Jeff Lynn, co-founder and CEO of leading equity crowdfunding platform Seedrs, shares his advice for entrepreneurs looking to attract crowd investors…
What makes a good crowdfunding pitch? The attractive alternative to traditional sources of finance is in rude health. Recent figures found the alternative finance sector exceeded over £1bn in transactions for 2013.
So, fresh from raising a record £2.58m from 900 investors, Jeff Lynn, co-founder of one of the UK’s largest crowdfunding platforms Seedrs, was in a mood to share some tips.
Speaking at the Hotwire Ignites FinTech event, part of the wider FinTech City London initiative, Lynn, discussed the top ways in which entrepreneurs can produce a successful crowdfunding pitch.
With £6m raised through its platform in just 18 months to over 60 companies, Lynn sought inspiration from Seedrs’ success stories so far.
Here are Lynn’s 18 key lessons:
- Create a simple proposition – “Future Ad Labs had a very simple idea, it said ‘CAPTCHA’s suck’. Even when people didn’t know what a ‘CAPTCHA’ was, the moment they said: ‘You know that squiggly writing you have to put into a website in order to get through the security check, don’t you hate that? Well we do too.’ And they created something clear that people love – PlayCAPTCHA Games.”
- Passion is essential – “Mike’s Fancy Cheese is a great example of this. Mike is this passionate cheese nerd in Northern Ireland that absolutely loves his cheese. He wanted to start Northern Ireland’s first ever blue cheese company and with lots of our investors more focused on tech this didn’t seem that exciting for them but Mike got out there. He got people from the cheese community supporting him, he got Northern Ireland backing him, and he raised £80,000.”
- Location doesn’t matter – “Start-ups can come from anywhere. Veeqo is from Swansea, I really don’t want to bash Swansea but having been there it is not one of Britain’s great innovation hubs. However, the founder Matt Warren is a fantastic entrepreneur and software engineer. He came up with a cloud storage system and was determined to keep it in his hometown. He has grown and grown the business since raising £120,000 initial capital through us.”
- Having a co-founder is better than not having one – “Satago offers an interesting story to support this. Founder Steven Renwick raised some finance to begin with through us but to grow further he really wanted to be part of major accelerator programme Seedcamp. He applied and became a semi-finalist but then found that he wasn’t a technical guy and although he could outsource his development Seedcamp basically said: ‘No, we’ll pass as we need to see you have a technical co-founder.’ Steven then found a technical co-founder, went back to Seedcamp and was accepted onto the programme and raised more money from there.”
- Personal and professional reputation matters – “Nicola Horlick came to us with the idea to raise money for a new venture management company, Glentham Capital. We had absolutely no idea how this was going to go as it was very different from anything we had done before. However as she is very well regarded in the space, hundreds of investors wanted the opportunity to back her and she secured £150,000 in less than 24 hours. Now I’m not saying go out and be Nicola Horlick but there’s a key lesson to be learnt that reputation aligns with investment potential.”
- Funds provide unique new opportunities for instant diversification – “We were approached by a Bristol-based entrepreneur who wanted to create his own incubator programme, WebStart. Again, we thought we would give this a try and see if investors would go for it. The opportunity to invest in an entire incubator class with a very loose fund structure really excited investors and it raised £150,000 in the first week which gave them money to fund 10 early stage start-ups in Bristol and it’s since achieved steady growth.”
- Pre-marketing can make the difference in funding today vs. next month – “I recommend start-ups take note of Microcosm’s crowdfunding strategy. Its founder David Kitchen is a fantastic entrepreneur but what really interested us about him was his ability to use Tumblr and forums to raise exposure. He had this impressive following on various forums that he moderated and he got them behind his business idea before it ever went live on Seedrs. By the time it came to Seedrs he had completed his pitch in around 24 hours securing £50,000.”
- Hundreds of investors and nominees make successful follow-on rounds – “PixelPin is a Wayra start-up and a great business. Interestingly they had originally gone to one of our competitors to secure capital but the slight problem is, one of the things we do that competitors don’t is provide a nominee structure instead of direct investment. PixelPin raised the direct investment on the competitor site but then Telefonica, which runs the Wayra accelerator, said that it couldn’t invest alongside all the other direct investors. So PixelPin came to us and were able to combine £150,000 crowd investment from our nominee structure along with corporate investment from Telefonica.”
- Leverage your existing community of fans (they already like you) – “We, Seedrs, used our own crowdfunding platform to raise a lot of money at the end of last year, a lot more than we expected to, from our own customer base. This was really enlightening because we thought we were just going to open up a small round but it turned into £2.1m. We secured this largely because we had already built a community of interested supporters, and by the time it came to us asking for investment they already knew a lot about us.”
- Raise what you need. Work hard. Grow. Come back for more – “Swogo is an online sales assistant service founded by a group of university entrepreneurs. They raised, what to many would seem a very small sum of money, £17,500 but it was just what they needed to take a few first steps and build the product so they could win a big client. With that they got through to European accelerator Startupbootcamp, secured a further £60,000 and they’ve now completed their fourth round through our platform.”
- Think like an investor – “Valuation has to account for risk and Gig Dropper, founded by Ross Evans, is evidence of this. Ross created an exciting music discovery app but he was launching in a crowded space and with competitive markets it’s very difficult to know how to value your company. Ross then did something very smart and gave his start-up a fair, reasonable valuation, about £90,000, and that’s not something a lot of entrepreneurs do. But for a lot of us, myself included, we thought ‘at £500,000 this wouldn’t be worth the risk but at £90,000 why not?’”
- If you can show off visuals of a niche product do it – “Bike HUD created an in-helmet display for motorcycle helmets. It was a new idea to try and we talked to a lot of motorcyclists who didn’t quite get how the product differed from competitors offering. So BikeHUD simply demonstrated it to them and played great videos to go with it. This worked effectively and they raised £90,000 from us and are now on their second crowdfunding pitch. I can’t emphasise enough the importance of visuals when it comes to a niche product.
- Hustle is what sets apart a good entrepreneur from an amazing one – “Amy Anzel is a former actress now starting her first ever production; Happy Days the Musical. People don’t really like to invest in theatre productions and often it can seem like something you do with your heart rather than with your brain; it hasn’t historically been a great asset for investment. Yet Anzel was so motivated and committed she got into every paper and onto every television programme and by hook and crook she managed to reach her £250,000 funding target.”
- Even wacky pitch videos are better than nothing – “Take Uevoc, previously evoc, for example. The founder had very little money behind him when he first came to us and so he had to make his funding video on a shoestring budget. He then used his own camera to make the silliest, most amateur, but hilarious video you have ever seen. Because it was so funny and engaging it helped to display his enthusiasm and passion and attracted attention to support its £20,000 funding round.”
- Always look to increase your sources of capital, it pays off – “I tend to find that when I meet people, many of them have already heard of Seedrs because of Tom Ball, founder of ‘oyster card for desks’ company NearDesk. Tom is one of the most social people I know and he’s great at building up relationships. He’s also been very smart with his ability to network appropriately, make lots of useful contacts and when he was trying to raise his funding round for NearDesk, he went out to his peers and business connections and managed to drive them to invest.”
- Discussion and recommendations can kickstart momentum – “Maxim Solutions is a technical but interesting appliance and when it first came onto the Seedrs platform a lot of investors looked past it; there was no real interest. Someone who was operating in a related industry posted onto the funding forum stating along the lines of: ‘Look I’ve spoken to one of the experts within the space and they think this company is fantastic, I’ve put in £5,000.’ This comment and similar recommendations helped Tom to complete a major £250,000 funding round.”
- Entrepreneurs can be investors, they share the same need to change the world – “This overlap can be seen in The Worth Foundation Fund, a brilliant business run by two entrepreneurs, Paul Soanes and Alex Johns. We came across them because Paul was originally an investor on Seedrs and had invested in a number of companies. He was starting out on his new project (the Fund) and we helped to facilitate funding for it.”
- The “crowd” of investors are smarter than we are! – “A company called Devario came to us to raise funds and we just didn’t understand what it was doing. We understood the basics to be able to diligence it but from a commercial perspective we just didn’t get how it would appeal to investors. But the crowd quickly jumped in and got it, especially those with retail and manufacturing backgrounds who understood it entirely. Never underestimate the ‘crowd’.”